Last week I wrote about the rise of socialist economics in American policy-making, citing the bailouts of Fannie Mae, Freddie Mac, and AIG as examples of this rising socialism. I also addressed the question of whether or not this marked the decline of capitalism in the United States. Since that time, there has been increasing turmoil in the financial markets as well as increased involvement by the government in the economy, most especially the proposed $700 billion bailout plan by the United States Treasury. When this plan was shot down in the House of Representatives on September 29th, it acted as a catalyst for the single largest dollar decline of the Dow Jones Industrial Average (over 777 points) as well as the Standard & Poor’s 500 Index (over 106 points) (see below, right). This reduction in stock values translated into an approximately $1.2 trillion decline in market value of the entire U.S. stock market. Considering the implications of the House of Representatives’ decision, I decided to explore various blogs to answer two questions of mine: why was the bailout plan deemed inadequate, and did the House of 
Representatives make the right choice in voting against it? After noting how close the vote was in the House of Representatives (228-205), I was surprised to see that most blogs agreed that the bill did not deserve to be passed. Admittedly, this is my own opinion as well, but I imagined there would be more of a counter-argument than there actually was. The question that more blogs disagreed on was why the House of Representatives decided to vote against the proposed bailout. I found two blogs that gave the most interesting insight into this decision and left my feedback on them. In the first blog, Amateur Economists, Evelyn Black addresses the issue in an entry entitled “Why Did Paulson’s Bailout Plan Fail in the Congress?” Black claims that the issues raised were the lack of regulation of CEO pay for companies that choose to receive money from the bailout plan as well as the fact that there is no guarantee the bailout would work. In the second blog, Church of the Customer, Ben McConnell briefly addresses the issue in an entry titled “Why the Bailout Package Failed.” He claims there are three main issues: the concentration of too much authority in the hands of Treasury Secretary Henry Paulson (see below, left), the lack of transparency about the administration, and, like Black, the lack of regulation of Wall Street CEO pay. For your convenience, in addition to posting my comments on their respective blogs, I have copied them below.
“Why Did Paulson’s Bailout Plan Fail in Congress?”
Comment:
Thank you for your useful insight into why Paulson’s bailout plan was voted down in the House of Representatives. It really helped to shed some light on the faults of this $700 billion piece of legislation With the market’s record-setting drop after this news was released, I think many people are wondering why exactly Congress voted against this plan and, had it been passed, whether the economy would have taken the downturn it had on Monday. Your analogy of the lobbying for this plan to an old western film is depressingly fitting, as Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke seem to be convinced that the only way to turn our economy around is by taking money out of the hands of the public and into the hands of the people who started this crisis in the first place.
I liked how you used the comments on New York Times editorials as evidence of a confrontation between Main Street and Wall Street. It adds a tangible aspect to a claim that is otherwise hard to quantify. I also liked your analysis of the analogy between this bailout plan and the Resolution Trust Corporation of 1989. I have seen the link made between the two before, especially in the context of the bailout not costing taxpayers as much as initially thought, but did not know enough about the Resolution Trust Corporation to be able to make the comparison. I agree that the comparison is not valid, for the RTC bought and sold actual assets, while this proposed bailout plan would be buying faulty financial instruments, the mortgage-backed securities.
Though I thought your blog was well researched and informative, I have some questions and comments about it. First, do you think the only reasons for the public outrage were CEO salaries? I don’t see any other reasons in the article other than the lack of a guarantee that the plan would work. Also, while you say that Congress negotiated some governmental oversight and provisions for helping homeowners keep their homes, I think this article would have benefitted by explaining those changes in more detail. The current description is relatively vague.
Thanks again for the helpful insight and I am looking forward to continuing reading your blog as the financial crisis progresses.
“Why the Bailout Package Failed”
Comment:
Thank you for your succinct article on why the bailout package failed to clear Congress. Like most people, I have been following the credit crisis closely over the past year and was especially following the progress of this bailout package. The way you opened the article with five especially gloomy headlines from a single day’s Wall Street Journal (and not even on the front page!) really painted a picture of just how dismal our economy is right now and put the entire bailout package into context perfectly.
In the body of your article, I liked how you very clearly laid out the three reasons why you believe Congress voted against the bailout. It was clear, concise, and eye-opening. I agree that the biggest issue with this bailout package was the lack of transparency in the system, especially given how much power Paulson would have been given. It is as if the government is trying to test the phrase “power corrupts, absolute power corrupts absolutely.” It was heartening to hear how the public became involved in this legislation, and I found your statistic that calls were averaging 100-1 against the bailout especially interesting. It solidified your statement that “vast numbers of citizens” were calling their representatives to reject the bailout and added credence to your argument that this financial crisis might bring about transparency in business and government.
Though I loved the article and I liked the way you started your article, I think you would have benefitted by saying what the front page headlines actually were. I understood your intentions behind what you did, but I believe it is more confusing that it has to be. Also, do you think that some of the outrage came from the fact that the government was giving money to the companies that caused this crisis rather than the people who have been hurt by it? The way you talk about rich fat-cats makes me think that you are one of the people who would rather see the money go into a stimulus package than bailing out Wall Street.
Representatives make the right choice in voting against it? After noting how close the vote was in the House of Representatives (228-205), I was surprised to see that most blogs agreed that the bill did not deserve to be passed. Admittedly, this is my own opinion as well, but I imagined there would be more of a counter-argument than there actually was. The question that more blogs disagreed on was why the House of Representatives decided to vote against the proposed bailout. I found two blogs that gave the most interesting insight into this decision and left my feedback on them. In the first blog, Amateur Economists, Evelyn Black addresses the issue in an entry entitled “Why Did Paulson’s Bailout Plan Fail in the Congress?” Black claims that the issues raised were the lack of regulation of CEO pay for companies that choose to receive money from the bailout plan as well as the fact that there is no guarantee the bailout would work. In the second blog, Church of the Customer, Ben McConnell briefly addresses the issue in an entry titled “Why the Bailout Package Failed.” He claims there are three main issues: the concentration of too much authority in the hands of Treasury Secretary Henry Paulson (see below, left), the lack of transparency about the administration, and, like Black, the lack of regulation of Wall Street CEO pay. For your convenience, in addition to posting my comments on their respective blogs, I have copied them below.“Why Did Paulson’s Bailout Plan Fail in Congress?”Comment:
Thank you for your useful insight into why Paulson’s bailout plan was voted down in the House of Representatives. It really helped to shed some light on the faults of this $700 billion piece of legislation With the market’s record-setting drop after this news was released, I think many people are wondering why exactly Congress voted against this plan and, had it been passed, whether the economy would have taken the downturn it had on Monday. Your analogy of the lobbying for this plan to an old western film is depressingly fitting, as Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke seem to be convinced that the only way to turn our economy around is by taking money out of the hands of the public and into the hands of the people who started this crisis in the first place.
I liked how you used the comments on New York Times editorials as evidence of a confrontation between Main Street and Wall Street. It adds a tangible aspect to a claim that is otherwise hard to quantify. I also liked your analysis of the analogy between this bailout plan and the Resolution Trust Corporation of 1989. I have seen the link made between the two before, especially in the context of the bailout not costing taxpayers as much as initially thought, but did not know enough about the Resolution Trust Corporation to be able to make the comparison. I agree that the comparison is not valid, for the RTC bought and sold actual assets, while this proposed bailout plan would be buying faulty financial instruments, the mortgage-backed securities.
Though I thought your blog was well researched and informative, I have some questions and comments about it. First, do you think the only reasons for the public outrage were CEO salaries? I don’t see any other reasons in the article other than the lack of a guarantee that the plan would work. Also, while you say that Congress negotiated some governmental oversight and provisions for helping homeowners keep their homes, I think this article would have benefitted by explaining those changes in more detail. The current description is relatively vague.
Thanks again for the helpful insight and I am looking forward to continuing reading your blog as the financial crisis progresses.
“Why the Bailout Package Failed”
Comment:
Thank you for your succinct article on why the bailout package failed to clear Congress. Like most people, I have been following the credit crisis closely over the past year and was especially following the progress of this bailout package. The way you opened the article with five especially gloomy headlines from a single day’s Wall Street Journal (and not even on the front page!) really painted a picture of just how dismal our economy is right now and put the entire bailout package into context perfectly.
In the body of your article, I liked how you very clearly laid out the three reasons why you believe Congress voted against the bailout. It was clear, concise, and eye-opening. I agree that the biggest issue with this bailout package was the lack of transparency in the system, especially given how much power Paulson would have been given. It is as if the government is trying to test the phrase “power corrupts, absolute power corrupts absolutely.” It was heartening to hear how the public became involved in this legislation, and I found your statistic that calls were averaging 100-1 against the bailout especially interesting. It solidified your statement that “vast numbers of citizens” were calling their representatives to reject the bailout and added credence to your argument that this financial crisis might bring about transparency in business and government.
Though I loved the article and I liked the way you started your article, I think you would have benefitted by saying what the front page headlines actually were. I understood your intentions behind what you did, but I believe it is more confusing that it has to be. Also, do you think that some of the outrage came from the fact that the government was giving money to the companies that caused this crisis rather than the people who have been hurt by it? The way you talk about rich fat-cats makes me think that you are one of the people who would rather see the money go into a stimulus package than bailing out Wall Street.
1 comment:
I found this post very hard to critique because there was so much depth to it that I found it hard to find flaws. I thought that your opening paragraph was very insightful and set a good background for your topic. I feel that even if someone didn't know what was happening with the bailout, they could understand by reading your blog. I like that you presented evidence of the "single largest dollar decline" with the picture because as a reader, I was able to visually see what had happened and it made it easier to understand. I also like how you stated your position on the bailout and how you were "surprised to see that most blogs agreed that the bill did not deserve to be passed." I agree and think that there would be more people who were for the bailout, even though that is not my position as well. I also thought that it was wise of you to include what the actual vote was in the House of Representatives. It allows the reader to get a better sense of exactly how close this bailout plan was to passing.
When it came to your comments on the other blogs, I felt that you did a great job of critiquing their thoughts. In the first blog comment where you stated that "Your analogy of the lobbying for this plan to an old western film is depressingly fitting," actually made me want to read Evelyn Black's blog. In the second blog comment, I liked how you gave feedback as to how Ben McConnell may make his blog easier to understand. I admire how at the end of your comments you asked questions and left constructive criticism about their blogs. I feel that by leaving questions in your comment, it allows the blogger to give you feedback. Well done!
As to critiquing your blog as a whole, there are just a few things that I would suggest. I would have liked to have seen your thoughts on why the bailout failed into more detail, since that was the whole concept of the blog. Also, I would have liked to know your thoughts on what the government should do to fix the economy. But overall, I thought that your blog was great and I look forward to reading your upcoming posts about our current financial issues.
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